15-Year vs 30-Year Mortgage: The Real Cost Difference
Quick answer
On a $350,000 loan, a 30-year mortgage at 6.75% costs $2,270.09 a month, while a 15-year at 6.0% (15-year rates are usually lower) costs $2,953.50, which is $683.41 more. The 30-year pays $467,233.60 in total interest and the 15-year pays $181,629.80, a saving of $285,603.80. If you invested that $683.41 monthly difference for 15 years at a 7% return, it would grow to $216,613.80. That's less than the interest saved, so in this example the 15-year comes out ahead even against a real investment return.
A 15-year mortgage always saves interest compared with a 30-year on the same loan. That part isn't in doubt. The real question is what else the higher monthly payment could have done for you, and whether investing the difference would beat paying the loan off faster.
This guide works through both sides on the same $350,000 loan, using a realistic difference in rate between the two terms rather than assuming the rate stays the same.
There's a payment gap and a rate gap
On any given day, at the same lender, a 15-year loan is priced lower than a 30-year, because the lender's money is at risk for less time. The gap is commonly somewhere around half to three-quarters of a percentage point, though it moves with the market. This guide uses 6.75% for the 30-year and 6.0% for the 15-year on a $350,000 loan.
The monthly payment is $2,270.09 on the 30-year and $2,953.50 on the 15-year, a difference of $683.41 a month. That's the real cost of choosing the shorter term. It isn't the same loan paid off faster for free. It's a noticeably bigger commitment every month.
What the shorter term gets you
Total interest over the full term is $467,233.60 on the 30-year and $181,629.80 on the 15-year, a difference of $285,603.80. Part of that comes from paying less interest each month on a balance that shrinks faster, and the rest from not paying interest at all for the 15 years the loan no longer runs.
The Mortgage Calculator lets you check this with your own loan amount, rate and term rather than relying on the $350,000 example. A smaller loan or a wider rate gap can change the numbers quite a bit.
"Invest the difference" is worth actually working out
The usual counter-argument is to take the 30-year and invest the $683.41 a month it frees up, rather than putting it into the mortgage. Over the 15 years the shorter loan would have run, at a 7% annual return, that grows to $216,613.80. It's a real figure you can calculate, not a guess.
$216,613.80 is less than the $285,603.80 of interest the 15-year loan avoids, so in this particular example paying the mortgage off faster wins, even against money that's genuinely invested rather than left idle. That won't always be true. A noticeably higher investment return, a smaller rate gap between the two terms, or investing for longer than 15 years could tip it the other way. It's worth running the numbers with your own assumptions rather than assuming either side is automatically right.
- The comparison is only fair if both figures cover the same money over the same time. Here, the investing stops at year 15, when the shorter mortgage would be paid off.
- A tax-advantaged account (like a 401(k) or IRA) changes the real return on the investing side. The 401(k) Calculator or Compound Interest Calculator can show you that.
- In one sense the 15-year path is also the safer one: the interest you save is guaranteed by the loan contract, while an investment return isn't.
Frequently Asked Questions
Is a 15-year mortgage always cheaper in total interest?
⌄
Yes, for the same loan amount. A shorter term always pays less total interest, both because the rate is usually lower and because interest builds up for fewer years. The question is whether the higher monthly payment is worth it, not whether the saving is real.
Why is the 15-year rate lower than the 30-year rate?
⌄
Lenders usually price a shorter loan lower because their money is tied up for less time and repaid faster, which is less risky for them. The exact gap moves with interest rates in general.
Does investing the difference always lose to paying down the mortgage?
⌄
No. This guide's own numbers show a fairly close comparison that depends heavily on the investment return you assume and the rate gap between the two terms. A higher return or a smaller rate gap can put investing the difference ahead instead.
Can I switch from a 30-year to a 15-year later?
⌄
Not directly, but you can refinance into a shorter term, or simply make extra payments on a 30-year loan to pay it off on a 15-year timetable. Either gets you a similar result without committing to the higher payment from the start. The Mortgage Payoff Calculator shows the extra-payment version.